Fitch Lowers India Rating Outlook To Negative On Covid-19 Impact
June 17 2020 - 10:37PM
RTTF2
Fitch Ratings lowered India's sovereign rating outlook to
'negative' from 'stable' on Thursday, citing the severe impact of
the coronavirus, or Covid-19, pandemic on the country's growth and
public finances outlook. The rating agency affirmed the country's
rating at 'BBB-'.
"The coronavirus pandemic has significantly weakened India's
growth outlook for this year and exposed the challenges associated
with a high public-debt burden," Fitch said.
The rating agency forecast 5 percent contraction for the Indian
economy for this fiscal year ending March 2021, due to the strict
lockdown measures imposed since March 25. The economy is expected
to rebound by 9.5 percent in the next fiscal year. Despite pressing
humanitarian and health needs, the government has shown expenditure
restraint so far, due to the already high public-debt burden going
into the crisis, with additional relief spending representing only
about 1 percent of GDP, Fitch estimated.
Further fiscal spending of up to 1 percentage point of GDP may
still be announced in the next few months, which was indicated by a
recent announcement of additional borrowing for the fiscal year
2021 of 2 percent of GDP, although we do not expect a steep rise in
spending, the agency added.
Latest official data showed that gross domestic product grew 3.1
percent year-on-year in the three months to March compared to 5.7
percent in the same period last year. The latest growth rate is the
lowest in at least eight years.
The Reserve Bank of India cut interest rates twice thus far this
year and the RBI governor has warned that growth is likely to be in
negative territory in the 2020-21, which would be the first
contraction in four decades.
Fitch also drew attention to rising geopolitical risks to the
outlook in the backdrop of the recent tensions on the borders with
China and Pakistan. "A stronger focus by the ruling Bharatiya
Janata Party on its Hindu-nationalist agenda since the government's
re-election in May 2019 risks becoming a distraction for economic
reform implementation and could further raise social tensions,"
Fitch warned.
The agency also cautioned that a structurally weaker real GDP
growth outlook, for instance due to continued financial-sector
weakness or reform implementation that is lacking, and a failure to
reduce the fiscal deficit after the pandemic recedes and to put the
general government debt/GDP ratio on downward path could attract a
negative rating action or downgrade.
India is still battling a severe spread of the coronavirus, or
Covid-19, especially in its commercial hub Mumbai. The country's
capital New Delhi and the southern state of Tamil Nadu are also
among the worst hit locations.
The government began easing the lockdown restrictions from May
18 in areas where the number of cases is less.
Household consumption and investment have been severely hurt as
economic activity came to a standstill.
Economists are looking forward to significantly worse figures
for the second quarter as the country remained in total lockdown
throughout April and during the first half of May.
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